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  1. Election 2024
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23 January 2024

Labour may never embrace tax rises

Even in office, the party would still want to fend off Tory economic attacks.

By Freddie Hayward

Rishi Sunak wants to establish a new reputation for his party. Out with cronyism, economic suicide missions and political turbulence; in with entrepreneurialism and tax cuts. No 10 seems to hope the next six weeks before the Budget are replete with speculation around lower taxes. Expect dry runs to appear in the Times and Telegraph, testing the media and the party’s appetite for this or that policy. Reports already suggest that Jeremy Hunt will use any wiggle room against his self-imposed fiscal rules to make a headline tax cut to build on the reduction in National Insurance announced in the autumn.

The problem with this strategy is that the government has spent weeks (two years, in fact) fighting a civil war in full view of the electorate over the scheme to remove asylum seekers to Rwanda. The government’s decision to shift its focus on to the economy depends on a reputation for competence. At the same time, its own MPs condemn its flagship migration scheme as a failure. Sunak tried to draw a line under last the series of Commons votes on the plan last week with a press conference on Thursday warning the House of Lords not to oppose the will of the people, only for their noble lords to do just that in a vote last night.

Besides these problems is the need to convince voters they would be worse off with Labour. That’s why Hunt cannot stop tweeting about Labour’s now-Potemkin plans to invest £28bn a year into the green economy. Labour is chasing the government down the tax cuts rabbit hole. The opposition doesn’t want to suggest root-and-branch tax reform out of a fear the government would weaponise any such movement as a sign of Labour’s rabid desire to rinse the rich of all their cash. In reality, Rachel Reeves has ruled out any major tax changes beyond raising small amounts from private schools, non-doms and private equity executives. The party has not countenanced the idea that raising taxes on the wealthy might allow taxes to be reduced on working people, nor that some inefficient taxes might be replaced with more effective taxes – as the Institute for Fiscal Studies suggested could be done with stamp duty yesterday.

The question is whether Labour’s decision to pass over tax reform is genuine, or an expedient way of closing down Tory attacks. If this is an electoral ploy that the party hopes to reverse in a few years, the risk is Labour is not building the political consensus around a radical economic programme that would stave off media and opposition attacks once in government. However, it seems that Rachel Reeves’s interest lies in supply-side changes – through planning reform, for instance – to increase production, not the tax system.

It may be redundant to ask whether the party’s position will change in government. The incentive to win elections does not disappear once Starmer enters No 10. The election cycle never stops. A Labour Party two years into government would still want to stave off Tory attacks about tax rises to win the next election. Maybe a colossal majority would stiffen spines in a Labour Treasury. But that didn’t happen the last time the party was in government. New Labour pursued redistribution incognito. It only dared to lift the top rate of income tax in its last month in office.

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The state of play, therefore, is this: we have a government hoping to gain votes by cutting taxes (even though the overall tax burden is at record levels), and an opposition that would rather tout tax cuts than make the argument for increasing them to pay for public investment or for the tax burden to be shifted to the wealthiest. With the gap between the two parties on tax shrinking, the debate may shift on to economic growth – an area that dominates Labour’s platform but has not dominated the political debate. That may change.

This piece first appeared in the Morning Call newsletter; receive it every morning by subscribing on Substack here.

[See also: The Conservative art of war]

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